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Hedge fund BlueMountain Capital Management outperformed the sector and its strategy peers, which have benefited from a rebound in the credit markets, by betting against the creditworthiness of US companies

Bluemountain made 18% on its investments in the first half of this year, in part by trading instruments that provide insurance to investors in bonds in the event their issuers are unable to pay interest on their debt.

So far this year, BlueMountain beat both the 9.5% from hedge funds, and 14% from funds focused on fixed income instruments issued by companies. Credit has been a popular strategy for hedge fund managers this year, but the manager of a European credit fund said investors needed to be patient, because a lot of the best investments would take time to bear fruit.

The manager's flagship credit hedge fund bet some of its $2.3bn (€1.6bn) on declines in the creditworthiness of companies including New York Times and Jones Apparel Group, according to Bloomberg. The publisher and clothing manufacturer announced cutbacks in staff and outlets this year.

Uncertainty about the creditworthiness of these companies sent the price of credit default swaps linked to them upwards, although the rise has abated recently.

CDS pays out the holders of bonds whose issuers have defaulted on their debt repayments. Prices for CDS rise if there is perceived to be an increased likelihood of this happening.

BlueMountain said in a recent investor letter that positions in its portfolio made money as consumers reined in spending.

“Shorts on companies that are heavily dependent on a robust consumer did well,” the manager wrote in the letter, cited by Bloomberg.